Thursday, August 12, 2010
goes on about why the "private-sector economy has not responded as administration economists expected"... but here is the reason and in less than 20 words:
The American public simply didn't believe Obama when he claimed his policies were going to make things better.
If they had believed Obama, businesses would have stopped laying off workers and consumers would have continued to spend. Banks would have continued to lend. Housing prices would have stopped falling.
But not only did we not believe Obama that things were going to get better, we figured things were actually going to get worse. So businesses continued to reduce staffing, in anticipation of continued drops in revenues and not being able to afford their current payrolls. Consumers continued to hold off spending, worried about higher taxes and the possibility of losing one's job. Businesses didn't lay out money for expansion and equipment, figuring they'd rather be safe and hold on to their cash. Housing prices continued to drift as would-be home buyers held off worried about even further drops in home values. And banks didn't extend loans, figuring that getting 3 percent from the government was better than taking a risk on a 5%+ loan to a local business.
As I have been harping on for a while, the specifics of the economic policies matter less than whether the public believes those policies will improve things. Some actions are more readily accepted by the public than others (cuts in tax rates, targeted investment credits, etc.), and in these cases, a President has an easier time selling the public that those policies and steps will lead to economic recovery. Other policies are a tougher sell (tax hikes, expanding government and forecasting trillion dollar deficits as far as one can see) and thus require a President who is pretty persuasive to sell the public that those policies will jump start the economy.
It isn't that raising taxes in a recession is sure fire recipe for disaster, nor is cutting tax rates an automatic and guaranteed way of igniting the economy, the key to whether a particular policies achieves its goal depends mightily on whether the public believes in what the President is selling. If they do, they'll act accordingly and things will start to improve. And if they don't, well, they'll not only pull back but they'll also be so much more reluctant to accept whatever other policy prescriptions the President is selling (this goes a long way to explain why the public is opposed to Obamacare; had the economy been doing better, Obama would have had more credibility with the public, but with the economy still in the toilet, Obama just didn't have the credibility to get people to believe his claims).
Obama's problem (actually, but one of his problems) isn't just that he went with the hard sell policies but that he wasn't very good convincing the American public to believe in his economic message. While he had the skill at convincing 53% of the voting public (a small subset of the public as a whole) to vote for him, this didn't translate to an ability to convince the public as a whole that he knew what he was doing economically.
And why? Well, a possible reason is that the 53% of voters who voted for him aren't the ones who drive the economy (or, at least, get the economy going). Obama didn't win a majority of small business owners. Obama didn't get a majority of the white middle class who have homes with equity and savings. He didn't score that well with seniors who have discretionary spending. He got a majority of people who don't make a bunch of money and who couldn't be counted on to increase their spending (for the simple reason that they already spend everything they make).
In other words, the people the economy most needed to believe in a President's economic policies were predisposed to not believe in Obama's message. A small business owner who voted for McCain (or who sat at home, disgusted with both candidates) because he didn't like Obama's economic policies wasn't going to start hiring new employees after the election. Middle class workers who voted for McCain for the same reason weren't going to start spending money after Obama was inaugurated; they thought things weren't going to go well and they pretty much ensured that things wouldn't go well. Bank loan officers worried about Obama's crackdown on lending wasn't going to expose himself by pushing new loans to small businesses and consumers.
And as things have continued to slide, Obama has doubled down on trying to sell us that his policies are working. Instead of changing his approach in hopes that we'd buy in, he's spending his time trying to show us we are wrong. Not a smart thing to do and not something that is likely to get us to buy in.